Western Digital says Toshiba breaching contract, wants exclusive chip talks

Wed Apr 12, 2017 10:18am EDT
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By Makiko Yamazaki and Taro Fuse

TOKYO (Reuters) - Western Digital Corp (WDC.O: Quote) has warned Toshiba Corp (6502.T: Quote) that the Japanese firm is violating a joint venture contract in plans to sell to its chip unit and urged that it be given exclusive negotiating rights.

In a strongly worded letter dated April 9, Western Digital, which operates a semiconductor plant with Toshiba in Japan, said the transfer of the venture's rights to a new chip unit which was split off recently without the U.S. firm's consent was a "very serious breach".

The letter, seen by Reuters, also said the U.S. firm would not sit idly by while Toshiba "runs roughshod" over its rights, although it did not threaten legal action.

The move, seen as a play by the California-based company to strengthen its hand in talks, is set to complicate the auction of the prized unit - a sale essential to Toshiba's plans to cover writedowns at U.S. nuclear unit Westinghouse that have plunged it into crisis.

"The only thing holding Toshiba up at the moment is the sale of the memory chip business. This definitely increases the uncertainty around everything that is happening," said an executive at one of Toshiba's main banks.

Sources at Toshiba's banks said they had been told by the Japanese conglomerate that there were no legal problems with its decision to split off the chip business.

The auction has drawn strong interest, and Toshiba has narrowed down the field to just four suitors to move on to a second round of bidding, people briefed on matter said.

U.S. chipmaker Broadcom Ltd (AVGO.O: Quote) has put in the highest first-round offer of 2.5 trillion yen ($23 billion) while Taiwan's Foxconn (2317.TW: Quote), the world's largest electronics contract manufacturer, offered 2 trillion yen, one of the people said.   Continued...

A Western Digital office building is shown in Irvine, California, U.S., January 24, 2017.   REUTERS/Mike Blake